Last week I wrote about the price action of the stocks in two companies after they issued trading updates. The stocks were Marks and Spencer (LSE: MKS) and Burberry (LSE: BURB). The price moves somewhat confused me. Today Card Factory (LSE: CARD) has issued a trading statement, and again the price action after it has left me puzzled.
Marks and Spencer share price
For Marks and Spencer the trading update of 11 January, 2024 was positive and included a line stating that full year profits would be inline with expectations. The Marks and Spencer share price gapped lower on the open, and continued to fall thorough the day. All in all it was down by around 5.4% compared to the prior days close. but the previous uptrend—which has been in place since October 2022—looks to be intact.
The prior day was a red one, and so was the day before. A glance at a price chart, shows the price has now fallen to the 50 day average,
Burberry share price
In the case of Burberry, its 12 January, 2024 trading update was disappointing. It included a profit warning. I would expect a hefty blip in the share price, and thats what happened. It gapped lower on the open by 14%. But, the share price rallied throughout the day, and it finished 5.5% down in the prior days close. However, given the price has been in a downtrend since May 2023, I doubt the rally offered much comfort.
The Burberry share price fell by about the same amount as the Marks and Spencer one despite one earning investors that it will earn less that expected this year, and the other saying they would earn what is expected. One positive update, one negative, and the outcome was largely the same.
Card Factory share price
Today Card Factory issued a trading update. The company told its investors that full year adjusted profit before tax was expected to be at the top of the range of market expectations. Total sales for the eleven months ended 31 December 2023 were up 10.2% year-on-year. Like for like store sales were up 8.2%. Christmas trading was strong.
The trading statement was not all Wonderfull. Online sales were down 12.8% year on year. However, given they were down 13.1 in the first half of the year, this is an improvement. Then there is the fact that online is a tiny part of the business to consider. Across the Card Factory and Getting Personal online shopfronts, just £5.8m of sales were registered compared to the £208.6m in stores: thats 2.7% of total revenue garnered online.
Now, the worry might be that it’s online or die. A retailer with a faltering online division is doomed to failure according to some. Perhaps, however, Card Factory is making the most of those that still prefer to shop in store. Yes, you could argue that those people will not be around forever. But, the company is investing in its online capabilities, so it sees the division as important and worthy of nurturing, but a the same time acknowledges that its online basket values are well below in-store ones, and is at the moment loss making at the EBITDA level, so its not going to blindly chase revenue here.
With all that in mind, would a 10% drop in the Card Factory share price make much sense? Im not sure it does at all, and thats not what has happened: in fact its down 11.5%. Now, yes, the markets are lower today as well. The FTSE All-Share is down 0.39% but that’s not enough to explain this. Superdry, a clothing retailer is down nearly 14%. Moneysupermarket.com, a price saving website service, is down 7.9%.
None of these reported anything today to spur these declines, so perhaps its an customer or industry-specific issue. JD Sports, a sports-fashion retailer, is in the top 10 decliners in the FTSE All-Share as well so perhaps thats what’s happening. Nonetheless, I would have expected a positive trading report to buck this trend in the case of Card Factory.
Greed and Fear
What the Card Factory and Marks and Spencer price action says to me is that investors think this is as good as it can get. Meeting expectations is no longer good enough. They have to be soundly beaten, or investors will take whatever they have on the table and run. That means investors must getting twitchy. If companies are not smashing through guidance then surely, the run is over, profits will fall, and that recession that everyone keeps warning about is on its way. In short, sentiment seems to be shifting.
The CNN Fear and Greed Index tracks sentiment in the US markets, but to be honest, global markets are so interlinked now (UK value stocks reacted sharply to US CPI data last week) I think it is a useful proxy for sentiment in the UK.
After peaking in the extreme greed region, sentiment is turning around. Although it’s still int he greed region, it is shifting and shifts usually swing all the way to fear. Yes, i’m basing this on two trading update and the price action following them, but there is a lot going on in the world that can rapidly unpick the confidence of investors, particularly short term ones. Bailing on two companies stock that are due to meet expectations, and both of which have confidence in their long term plans working out fine, reeks of capitulation, and an abandonment of whatever optimism was growing in the later part of 2023. I do hope I am wrong.
DISCLAIMER: James J. McCombie owns shares in Marks and Spencer, Card Factory and Burberry. The Storied Investor has no beneficial ownership position in any of the stocks or securities mentioned. No comment in this article should be construed as a recommendation of, or opinion regarding the future performance of, any stock or security or collection of them mentioned herein. Opinions expressed are the author’s and do not represent the views of The Storied Investor.
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